In a ruling that increases liability for companies that use text
messaging for marketing or communicating with customers, the U.S.
Court of Appeals for the Ninth Circuit adopted an expansive
definition of what constitutes an automatic telephone dialing
system—or ATDS—under the Telephone Consumer Protection
Act. In Marks v. Crunch San Diego, the court
held that any equipment that has the capacity to dial numbers from
a stored list, such as a database of numbers, is an ATDS under the
TCPA. The Sept. 20 ruling creates a split among the Courts of
Appeals as to the scope of the TCPA that could lead to resolution
by the Supreme Court.

The Telephone Consumer Protection Act

The TCPA prohibits unsolicited calls advertising "property,
goods, or services" using an ATDS and prerecorded messages to
residential and cellular phones. The Federal Communications
Commission has interpreted the TCPA's restriction to apply to
both "voice calls and text calls to wireless numbers,"
including text messages. The TCPA defines an ATDS as
"equipment which has the capacity (A) to store or produce
telephone numbers to be called, using a random or sequential number
generator; and (B) to dial such numbers."

FCC Orders and the ACA Ruling

Over the course of a series of rulings that spanned 12 years,
the FCC determined that predictive dialers and new technology can
qualify as ATDS even if they do not generate or store random or
sequential numbers.

Most recently, in its 2015 TCPA Omnibus Declaratory Ruling and Order, the
FCC expanded the definition of an ATDS as any system with the
"potential ability" to have the capacity to generate or
dial random or sequential numbers. This expansive definition
appeared to encompass all modern smartphones or any equipment that
could be programmed in the future to sequentially or randomly
generate and dial numbers.

Then, earlier this year, the D.C. Circuit's long-anticipated
ruling in ACA International v. Federal Communications
Commission invalidated key aspects of the FCC's
Omnibus Ruling. One critical aspect of the D.C. Circuit's
ACA ruling was its rejection of the FCC's broad
interpretation of what constitutes an ATDS. The court concluded
that the FCC's interpretation of ATDS was "unreasonably
and impermissibly expansive."

However, in rejecting the expansive definition embraced by the
FCC, the ACA court did not establish an alternative
definition for ATDS and confirmed only that no definition that
encompassed all modern smartphones would suffice. The court
suggested that focusing on a system's present versus potential
capacity was not a helpful framework and that the focus should be
more on the question of "how much is required to enable the
device to function as an autodialer."

Background on the Crunch Fitness Case

Jordan Marks sued Crunch Fitness in the Southern District of
California alleging the company had violated the TCPA by sending
him three text messages over the course of nearly a year after he
joined the gym. Crunch had sent the text messages using a
Textmunication system, a web-based interface that sends text
messages to a list of stored numbers. Textmunication users can
program the system to send messages to the stored phone numbers at
a time scheduled by the client.

In 2014, the district court granted summary judgment for Crunch
on the grounds that the Textmunication system did not qualify as an
ATDS, because it lacked a random or sequential number generator as
used by Crunch and did not have the capacity to add such a feature.
Because the court defined an ATDS as necessarily including a random
or sequential number generator, the court did not consider
Mark's expert, who stated that the Textmunication system called
numbers from a stored list.

The Recent Ninth Circuit Reversal

The Ninth Circuit recently reversed the decision of the district
court, ruling that the question of whether the Textmunication
constituted an ATDS is for a jury to decide. In its reasoning, the
court held that because the D.C. Circuit vacated the FCC's
interpretation of what sort of device qualifies as an ATDS, only
the statutory definition of ATDS remains.

In its analysis, the Ninth Circuit noted that the definition of
ATDS raises two questions: (1) when does a device have the
"capacity" to perform the two enumerated functions; and
(2) what precisely are those functions. The court determined that a
proper definition should convey whether, in order to be an ATDS, a
device must dial numbers generated by a random or sequential number
generator or whether a device can be an ATDS if it merely dials
numbers from a stored list. The court further reasoned that an
adequate definition must determine to what extent the device needs
to be able to function without human intervention in order to
qualify as an ATDS.

After finding the statutory definition ambiguous, the court
examined the context and structure of the statutory scheme. Based
on its examination, the court held that the definition of ATDS
means equipment that has the capacity (1) to store numbers to be
called or (2) to produce numbers to be called, using a random or
sequential number generator—and to dial such numbers. The
court further held that an ATDS is not required to be fully
automatic. It stated, "Common sense indicates that human
intervention of some sort is required before an autodialer can
begin making calls, whether turning on the machine or initiating
its function."

Because Crunch's Textmunication system stores numbers and
dials them automatically to send text messages as part of a
campaign, the Ninth Circuit ruled the district court's order
granting summary judgment should be reversed.

Takeaways

The Ninth Circuit's adoption of this expansive definition of
ATDS is at odds with the D.C. Circuit's ACA decision,
because it arguably expands the definition to include all modern
dialing technologies, including smartphones, which the D.C. Circuit
found "unreasonably and impermissibly expansive." The
decision also conflicts with the narrower definition adopted by the
U.S. Court of Appeals for the Third Circuit earlier this year in
Dominguez v. Yahoo, where the court held
that an ATDS must have the present capacity to randomly or
sequentially generate numbers.

This circuit split will likely be resolved by a clarifying
ruling from the FCC by the end of the year. In the meantime, the
court's ruling is expected to invite more lawsuits alleging
TCPA violations in the Ninth Circuit. ​​​

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